GOP senators blocking Treasury nominee over interest rate scandal

By Peter Schroeder - 11/14/12 03:23 PM ET

A pair of Republican senators are blocking a Treasury Department nominee because Treasury Secretary Timothy Geithner has not responded to their questions on an ongoing interest rate rigging scandal.

Sens. Chuck Grassley (Iowa) and Mark Kirk (Ill.) announced Wednesday that they were blocking the nomination, accusing the Treasury of refusing to answer questions about efforts to rig the London Interbank Offered Rate (Libor), which is set by banks and serves as a benchmark interest rate for a range of financial products.

"Because everything from home mortgages to credit cards was pegged to Libor, its manipulation affects almost every American," Grassley said. "Given the widespread effects of this manipulation, it is disturbing to see that the Treasury Department has thus far refused to answer basic questions and provide essential documents."

The pair is now blocking the nomination of Richard Berner, who the president had tapped to head the new Office of Financial Research within the Treasury. That office, created by the Dodd-Frank financial reform law, is designed to collect and analyze large amounts of financial data in an attempt to identify fledgling threats to the stability of the financial system.

The lawmakers sent a letter to Geithner in October, accusing him of "complacency" in addressing the rate-rigging scandal. They called on Geithner to establish an American-based interest rate index to replace Libor, and wanted to know how much harm had been done to American investors due to the scandal.

Now, they say the Treasury has failed to provide them with answers and repeatedly canceled attempted briefings with their staff on the matter.

The controversy over the interest rate began this summer after the British bank Barclays agreed to pay nearly half a billion dollars to settle charges with U.S. and U.K. regulators that it worked to manipulate the rate for years. Libor is set based on interbank lending reports from a group of 18 banks, including three based in the United States, and it is monitored by the British Bankers Association.

Barclays went on to charge that other banks were conspiring to rig the rate, and Geithner was swept up in the controversy as well, because concerns about Libor first emerged at the New York Federal Reserve Bank when he was running it.

Geithner defended his behavior for hours before skeptical lawmakers in July, saying he took the appropriate steps by notifying regulators in the United States and United Kingdom.

He added that the government was looking into alternatives to Libor going forward but that the rate continued to be used as a benchmark after concerns emerged because it remained the best option available.